Judge stops bid to block Kenya Airways’ share sale

A judge Tuesday declined to stop the ongoing Kenya Airways (KQ) rights issue after a minority shareholder sought orders to suspend the exercise.

The shareholder, Prakash Gadani, had claimed that his shareholder rights would be infringed and the value of his shares shrink if he fails to take up the offer.

Constitutional Court judge Mohammed Warsame directed Mr Gadani to serve the court papers to KQ for an interparty hearing on April 20.

Mr Gadani argues that shareholders were not given enough time to question the board over their decision to propose and implement the rights issue.

The shareholder wanted the court to temporarily stop the airline directors from offering the shares at Sh14 or listing them at the Nairobi Securities Exchange (NSE) pending hearing and determination of his case.

He argues that the shareholders who cannot exercise their rights offer in full could lose 66 per cent of the value of the shares, adding that one is being forced to give up Sh28 per share which comprise two third of the value.

KQ intends to raise Sh20.7 billion by way of the rights issue of new ordinary shares to finance ongoing expansion plans and pay for the acquisition of additional aircraft.

Mr Gadani says in court papers that the rights issue offer price represents a discount of 32.2 per cent to the volume weighed average price of KQ ordinary shares on the NSE for the past 90 trading days up to February 29 after the board’s approval.

Through his lawyer Stephen Gitonga, Mr Gadani claims that the current shareholders have not had the chance to question the board of directors to explain the logic behind selling shares at Sh14 when the net asset value is Sh42.

The lawyer told Mr Justice Warsame that the issuance of shares is oppressive to his client and other minority shareholders, adding that the airline issued the Information Memorandum—the basis of the trading of the rights share issue—after the shares had started trading.

KQ rights shares issue was approved in the last annual general meeting where shareholders passed the proposals made by the board and the mandatory approval was consequently granted by the Capital Markets Authority.

On March 29, KQ launched a rights issue where shareholders were allocated 16 shares for every five shares held at a price of Sh14.

Mr Gadani claims that KQ intends to raise the Sh20.7 billion before expenses, by way of a renounceable rights issue of 1.5 billion new ordinary shares at a price of Sh14.